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Monday, May 27, 2024

FTX Customers Set to Recover Lost Funds and Interest After Exchange’s Collapse

FTX, the cryptocurrency exchange that faced a catastrophic collapse in 2022, is now on the brink of compensating its customers for the entirety of their losses, including additional interest, according to the company’s bankruptcy lawyers.

The announcement marks a significant milestone in the effort to recoup the $8 billion in customer assets that vanished when FTX experienced a sudden and dramatic downfall, sending shockwaves through the crypto industry. As per a plan outlined in federal bankruptcy court in Delaware, nearly all of FTX’s creditors, which include countless ordinary investors who utilized the platform for trading digital assets, are slated to receive cash reimbursements equal to 118 percent of their stored assets on FTX.

These reimbursements will be sourced from a pool of assets that FTX’s legal team has amassed over the 17 months since the exchange’s collapse, offering a glimmer of hope to those who were affected by the crisis.

However, there’s a caveat to these recoveries. The compensation owed to customers has been calculated based on the value of their holdings at the time of FTX’s bankruptcy in November 2022. Consequently, customers will not benefit from the recent surge in the cryptocurrency market, which saw the price of Bitcoin skyrocket to record highs. For instance, a customer who lost one Bitcoin during FTX’s collapse would now be entitled to less than $20,000, despite Bitcoin’s current value exceeding $60,000.

While the prospect of substantial customer reimbursements seemed bleak in the aftermath of FTX’s collapse, the emergence of this recovery plan offers a glimmer of hope. Prior to its demise, FTX served as a crucial marketplace for trading digital currencies, with billions of dollars in crypto assets stored on its platform.

Following the collapse, FTX’s founder and CEO, Sam Bankman-Fried, stepped down, ceding control to John J. Ray III, a seasoned executive with experience in corporate turnarounds, including overseeing Enron’s unwinding. Subsequently, Bankman-Fried was convicted of orchestrating a massive fraud scheme, diverting billions of dollars in customer funds for various ventures, and was sentenced to 25 years in prison in March.

Under Ray’s leadership, FTX embarked on a formidable task of locating the missing assets, which resulted in notable successes. Some of these recoveries stemmed from profitable investments made during Bankman-Fried’s tenure, such as a $500 million investment in the artificial intelligence company Anthropic. The surge in the A.I. industry significantly boosted the value of these shares, leading to a lucrative sale of two-thirds of FTX’s stake for $884 million this year.

Additionally, FTX managed to secure over $400 million in recovery from Modulo Capital, a hedge fund financed by Bankman-Fried. Legal action was also pursued against former company executives and individuals, including Bankman-Fried’s parents, to reclaim funds.

Expectations of substantial recoveries in the FTX bankruptcy have been circulating among crypto experts for months. Some opportunistic investors even acquired bankruptcy claims from FTX customers at reduced rates, banking on potential profits once the reimbursements commence.

As FTX edges closer to compensating its customers for their losses, this development serves as a beacon of hope amid the turmoil that ensued from the exchange’s collapse, underscoring the resilience and potential of the cryptocurrency industry to navigate through challenges and emerge stronger.

David Faber
David Faber
I am a Business Journalist of The National Era
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